Finding Estate DebtsShow Table of Contents
As part of taking inventory, an estate executor must look for and validate the debts of the decedent's estate.
Notice of Death Publication
If the estate is going through probate, the executor must typically publish a notice of death in the local newspaper where the decedent lived (see Sample Estate: Task - Publish Notice of Death). The purpose of this notice is designed to inform potential creditors of the death, and while details vary from state to state, creditors typically have 3 to 9 months to contact the estate about any debt claims. If a potential creditor misses the claims deadline then the estate would not typically have a legal obligation to pay the debt (see Sample Estate: Task - Debt Claims Expired). Note that debts to the federal government are often an exception to this rule.
Even if the estate is small enough to avoid probate, the executor may still wish to publish a notice of death, to protect the estate from future debt claims, which could be quite problematic if the estate assets have already been distributed.
In Virginia, the executor is required to provide notice of appointment or probate to any surviving spouse, all beneficiaries named in the will, and all people who might inherit from the estate if there were no will (i.e., close relations). See Code of Virginia § 64.2-508.
However, the above notification has nothing to do with creditors. To put in place a deadline for creditor claims, a Virginia estate executor may request a Debt and Demands Hearing from the Commissioner of Accounts. The Commissioner will set a time and place for receiving proof of debts, and publish a notice at least 10 days in advance. The executor may choose to individually notify known creditors of the Hearing, and is required to do so if a debt is in dispute. See Code of Virginia § 64.2-550.
Informal Debt Claims
There are certain debts you will quickly discover as you go through the decedent's mail, or are contacted by creditors, such as insurance premiums, credit card balances, utility bills, and so forth.
If desired, you can also run a credit report on the deceased, perhaps discovering debts about which you would otherwise be unaware. You may be able to get the credit report for free if and when you notify the credit reporting agencies of the death.
You don't necessarily have to pay any of these debts unless the associated creditor makes a formal claim against the estate, potentially in response to the notice of death, but most executors will opt to do so in an attempt to "do the right thing". Moreover, failing to pay some of these ongoing bills may result in unwarranted harm to the estate (such as foreclosure or frozen pipes bursting): see Resolving Debts: Ongoing Bills.
In any case, these bills will likely continue to arrive over time, so it will likely be several months before you have a complete picture of all debts.
Statute of Limitations and Claims Deadlines
All states impose statutes of limitations on debts, meaning that after a certain amount of time passes from a debt's due date, the courts can no longer require the debtor to repay the debt. Typically, these time limits range from 3 years for open accounts (such as credit cards) to 10 years for contract debts.
When someone dies, these statutory limitations are often both extended and shortened. They can be extended in that the expiration period is often put on hold for a few months, so that everyone has a chance to get organized and sort things out. This "hold" is officially called "tolling" the debt, but is not usually a major factor since statutory limits are measured in years.
However, statutory limits are also shortened in that almost all states have mechanisms for the estate to establish a time limit for claim submissions measured in months, not years, and these shortened limits overrule any statute of limitations (in other words, even if a statute of limitations implies that a debt would still be enforceable, it will not be enforceable if the estate limits have kicked in). The section above on Notice of Death Publications explains how the estate can limit the exposure to debts.
Note that debts which become time-barred (i.e., become unenforceable due to the statute of limitations), are considered "cancelled" by the IRS, and generate a taxable event, which the creditor may report to via a Form 1099-C (see IRS: Taxes on Canceled Debt).
In Virginia, there is no default deadline for creditors to make claims against an estate (other than the normal statute of limitations for a given debt).
However, if the executor has scheduled a Debt and Demands Hearing, then the Commissioner of Accounts will establish the official list of debts within 60 days of the Hearing, thereby preventing any additional future claims. It's possible that the Hearing could be rescheduled, or that creditors could file for extensions and exceptions, but in general this is the only way to put a hard deadline to creditor claims (secured debt, such as a mortgage, is not impacted by such a hearing). See VA Code § 64.2-550, 551.
Subject to such a potential limit, Virginia maintains a 3-year statute of limitations on open account debts, and 5 years on contract debt (see VA Code § 8.01-246). Contracts for sale are handled specially according to the Uniform Commercial Code, and have a 4-year limit (see VA Code § 8.2-725). Statute of limitations are calculated from original due date or most recent payment, whichever is later.
If the estate is insolvent and no hearing has been held that would establish an earlier deadline, an executor is personally protected from liability for using estate funds to pay off debts if he or she waited 12 months from appointment to make such payments, and it later turns out that there were higher priority debts unknown to the executor at the time of payment. See VA Code § 64.2-529.